Torch sheds new light on the commercial real estate sector

Blockchain: it is the new buzz word at every single financial institution, wherever you go. Blockchain technology is pretty much at the apex of Gartner’s hype cycle, and is sometimes compared to teenage sex. To quote Dan Ariely about Big Data, it is like teenage sex: ‘everyone talks about it, nobody really knows how to do it, everyone thinks everyone else is doing it, so everyone claims they are doing it.’

Blockchain is set to have a major impact on various sectors, even entire value chains, including the real estate market.Merijn Zaat Innovation Manager Blockchain

Current thinking holds that blockchain will have a major impact on various sectors, even entire value chains, including the real estate market. Characterised by efficiency, transparency and smart contracts, potentially it will simplify the processes in this sector significantly and help us to develop new business models. ABN AMRO’s blockchain initiative Torch sheds new light on the commercial real estate sector.

Torch: faster, easier, more transparent

Torch brings together various parties such as real estate investors, appraisers, banks and Dutch central bank DNB and offers them an online platform for validating and exchanging data. The integrity of that data is automatically secured using blockchain technology, which grants authorised parties direct access to the latest version of the appropriate information. For example, DNB can carry out audits whenever it wishes, without triggering an elaborate reporting process first.

The client delivers information via the platform and retains control over the data in terms of who may access it. For example, the client can allow other parties to access data for carrying out valuations, but prospective buyers or financiers of the property may also be given access. The result is a more transparent market and reliable real estate data, making it faster and easier to do business. Watch this video clip to find out how it works.

The team

The disciplines working on Torch are very diverse: the large scrum team includes product owners, a scrum master, customer developers and programmers. The product owners understand commercial real estate, bring domain expertise to the table and create the vision that we work toward. The scrum master oversees the working methods – for example the system of three-week sprints, which always begin with a plan of action and end with a demo and evaluation.

Value for users

Working in short cycles means that we are doing whatever adds most value, and that we have the flexibility to make changes where necessary. The final outcome and deadline are not written in stone, as they are with traditional project management. It is much more important to build a product that our users actually want. By having the various users test demo versions of Torch, and then making changes again and again based on their feedback, we know exactly what the product should eventually look like and what it should do.

Where we stand now

The past months have been spent building an MVP (Minimum Viable Product): a first working version that offers basic functionalities. This test version is an easy tool for clients to share their lease contracts with the bank’s relationship managers to validate the data. The appraiser can then access the data to value the object. At the same, we are working with supervisory authority DNB to determine how to give its people access to the information in Torch. In the months ahead we will carry out a beta test with a select group of clients and appraisers and then use their feedback to further optimise the MVP.

Learning about blockchain

While we are of course learning a great deal about our users’ requirements from our repeated tests with Torch, at the same time we are also getting a better grasp on the technology. For example, initially we had thought to place all the real estate data in the blockchain. However, this proved unwise for two reasons. Firstly, it means that every party has all the data on file. Although those parties can only access data if they have the appropriate permission, and even though the files are very securely encrypted, the possibility remains that the encryption technology will be hacked. This would make the data retroactively available to parties that should not have access, which is unacceptable for reasons of privacy. Secondly, the system was rendered very slow by the sheer size of the files that needed to be shared.

We therefore opted for a lighter and more secure structure: data is stored with the most appropriate party, and only shared using regular data interfaces called APIs. Blockchain is used to create a ‘hash’ (essentially a fingerprint) of this data and share it with the entire network. This enables everyone to see right away whenever new information about a particular property becomes available, without the data being shared – it is shared on request, and only with parties that have the necessary permissions. As a consequence, every party involved has up-to-date information about the real estate transactions. Whenever a party receives data, it can use the hash to verify whether the content is original and valid, i.e. that it has not been manipulated. This is very useful for due diligence investigations, for example in the event of transfers of ownership, financing and refinancing.

Working together to seize new opportunities

Blockchain offers a great deal of potential for simplifying data processes: the bank’s own processes, but also processes between the separate parties within the real estate value chain, such as appraisers, other banks and the supervisory authorities. It will create an infrastructure for real estate data on which countless applications can be based – for example data-driven advice, digital asset management, smart contracting and facilitation of a circular building passport. We will use the coming phase to further explore and develop these models with input from the various parties in the sector, actively seeking out partnerships and keeping an open mind to new ideas: after all, blockchain only works in co-creation with the stakeholders.